The ROI of Performance Management: 4 Reasons it is Crucial

Sarah, the HR manager in an organization has a performance management strategy to roll out next quarter. It includes providing feedback and recognition, training and coaching, employee development opportunities. 

Before rolling out she had to get buy-ins from the executive leaders, managers, and employees.

She managed to convince everyone in the organization as quickly as lightning. 

Wondering how she did it? 

It was simple. 

She simply articulated the ROI of performance management to everyone- and believe me there are plenty of evidence to support her case. 

“Performance Management system is very critical to keep an ongoing track on the returns of the enterprise on its investment in People resources.” – Adil Malia, CEO and Managing Partner, The FiRM 

Are you curious to know the ROI of Performance Management? Do you want to know what you can gain from better performance management? 

Let’s find out.

In a Brandon Hall Group Performance Management Study, 9 out of 10 organizations agreed that performance management is crucial for business growth.

“Performance management, when handled skillfully in an organization today, can increase job satisfaction, employee retention, loyalty, and overall performance of the organization.”– Soumyasanto Sen, Co-Founder & Partner, People Conscience 

1Reduced turnover and Drive retention

Engagement and retention are pressing concerns for HRs.

Study shows that cost of replacing an employee can be 1.5-2 times the employee’s annual salary. The primary causes of turnover are lack of communication, excessive workloads, lack of recognition, limited growth opportunities, low engagement rates, etc. 

Another study suggests that the US will face a loss of  $430 billion annually due to low retention by 2030. However, with a good retention rate, you can see up to 4x profit in your company.

“To win in the marketplace you must first win in the workplace.”- Douglas Conant’s

A good performance management strategy takes care of each of these aspects with planning, monitoring, developing, and rewarding. Performance management makes sure that your employees are happy and are feeling appreciated.

It helps HRs to understand the skill set and interests of the employees.  So that they help employees map their roles.

When your employees know what is expected of them, when they get opportunities to develop and are appreciated for a job well done- It certainly adds up to employee job satisfaction thus directly influencing your employee retention rates.

Studies have shown that  “job satisfaction improves employee retention.”

2Improved customer satisfaction

Performance management helps you improve employee happiness.  And happy employees lead to happy clients. Thus, can save you $537 trillion each year lost to Unhappy customers.

Performance management helps you set and align customer service goals and recognize high-quality customer service.

By helping you balance between happy external and internal clients, performance management also plays a key role in improving customer services at your organization. 

Case study: Sprint 

When Sprint saw the highest customer churn by the start of 2008, it launched a  new performance management tool. As a result-

-Their customer satisfaction rates were improved

– the cost of Care operations was reduced by more than a third, 

-Cut Sprint’s customer churn rate fell to less than 2% 

-they started delivering improved customer service with a less number of call centers.

They were also recognized as the “Best Choice” cell-phone phone provider in the U.S. by a leading consumer magazine after the move.

Click here to read about the benefits of continuous performance management

3Increased productivity

Good performance management programs focus on communication, feedback, and recognition. When people feel heard and valued they feel engaged and motivated to perform better.

According to a Gallup study, disengagement can cost your organization $3,400 for every $10,000 of salary. Another Gallup report shows that lost productivity costs the U.S. $450 to $550 billion annually.

When employees understand that the organization values their development along with the organizational growth, it creates a sense of belongingness.

When organizations roll out a proper performance management strategy, 70% of employees are more likely to feel valued at the workplace.

“People perform best when they know what is expected of them. Authority to clear stated management expectations with consistent measurement and follow up and you can get the results you are looking for.”  

With smart goals, real-time feedback, improved team collaboration, improved HR efficiency- powerful performance management can boost productivity and build a strong work culture.

4Business growth

Performance management helps you align employees to company vision & values. Organizations with good performance management systems are 3 times more likely to report financial growth

71% of managers are not aligned with the company vision. 

“A strong performance management system not only helps in getting everyone aligned on the over-organization mission and goals but also goes a long way in building a culture of trust and meritocracy.” – Saurabh Nigam, Vice President-Human Capital, Omidyar Network

Good performance management based on continuous feedback helps you find obstacles your employees might be facing in performing. And remove them before it’s too late.

It helps you keep track of its people’s skills, find the skill gap and fill it with Development and training opportunities. It helps in talent Acquisition and works as a competent branding tools.

Also Read : Performance Management for Remote Teams: A Quick Guide

Still, confused about the ROI of performance management?  

Here’s another survey result that speaks for its benefits. 

As per the 2013 survey, involving 1,056 companies, 43% agreed that Performance management helped them in improving performance and 15% of them agreed that it helped them focus on the “right” things.

Be aware:

The traditional performance management process is broken. 

As a result, 70% of organizations are thinking of restructuring performance review methods. 

What is the solution?

Implement continuous performance management with frequent one-to-ones and check-ins.

“Having a right and continuous performance management system helps an organization to convert, monitor, provide feedback and course correct, strategize the long-term objectives and its execution.” – Srinivas Chunduru

Click here to read how to evaluate a performance management software

Conclusion

Performance Management is an important cornerstone. HRs who are focusing on the continuous development of performance management,  are sure to experience great rewards. Studies further emphasize its benefits. 

When organizations understand its blessing, it almost becomes unthinkable for them to go without a proper performance management strategy.